OTS suggests simplifying the VAT system for SMEs

The taxation burden on small businesses could be eased by some changes suggested by the Office of Tax Simplification. Such changes would no doubt make life easier for contractor accountants as well.

One of these changes involves simplifying the VAT procedures for SMEs that trade across the EU and aligning the tax year end with the end of the month rather than the 5th April as it is now.

The OTS also suggests ignoring the structure of a company when it comes to taxation and offering an incentive to companies that wish to dis-incorporate.

Furthermore, the government should introduce a single rate of corporation tax to reduce tax complexity.

Another proposal would exempt small businesses from reporting employees’ expenses up to a £500 limit. Currently, if reimbursed expense transactions are not reported, the money becomes taxable.

The small business capital allowance limit should be set and remain fixed at that rate for several years in order to promote certainty, the OTS recommends.

The OTS report stated that it may be more beneficial to create a better relationship between small businesses and HMRC, which simplifies the processes of compliance, rather than simplifying the legislation.

Meanwhile, the Revenue has unearthed a tax avoidance scheme, involving plant and machinery, which is worth hundreds of millions of pounds.

The scheme involves the sale and subsequent leaseback of plant and machinery solely to obtain tax relief. Large companies have sold plant and machinery, leased it back and then reacquired it over several weeks. Capital allowances on the leaseback are then claimed twice on the same expenditure. According to David Gauke, the exchequer secretary to the Treasury, £1 billion worth of expenditure has been involved in this scheme, depriving the Treasury of hundreds of millions in tax.

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